Swiss credit is sometimes said to exist in the gray area without providing valid reasons.
Are Swiss loans legal? Clear answer: YES! Last year, the Bundestag even passed a law that clearly regulates the legal position of Swiss loans.
What is the legal situation regarding Swiss loans?
- Swiss loans may only be granted by regulated credit institutions
- The EU regulations on consumer protection apply without restriction
- According to §505a BGB, banks are obliged to carry out a credit check
- The obligation to perform a credit check does NOT mean that the Credit Bureau has to be asked
The legal situation stipulates that loans may only be granted by licensed and regulated credit institutions. By contrast, personal loans are prohibited (within a commercial framework) by the KWG (Banking Act). Where personal loans are advertised as such, the statement relates either to private use or to peer-to-peer platforms, where a bank is always involved in the lending process.
There is also a right of withdrawal for Swiss loans
The same rules regarding consumer protection apply to Swiss loans. Banks are obliged to provide the standard form “ European standard information for consumer credit” when granting credit.
Borrowers also have a 14-day right of withdrawal. This can be exercised without giving reasons.
Up to this point, Swiss loans do not differ from other bank loans. The main difference concerns the credit check. For Swiss loans, this includes the applicant’s self-disclosure (information on income, expenses, current credits, maintenance obligations, etc.) as well as information from public directories (e.g. local court at the applicant’s place of residence).
Legally not doing a Credit Bureau query on Swiss loans?
However, the questioning of credit reference information (e.g. Credit Bureau), which is otherwise common in banking, is dispensed with.
As a result of this waiver, Swiss loans are in practice also available to consumers who do not receive a conventional bank loan. Specifically, those who have a sufficient income and have no negative characteristics (e.g. bankruptcy, submission of an affidavit) benefit.
Is it legal to forego a Credit Bureau query? YES! Credit Bureau is the market leader in the field of credit checks, but has no legal privileges. Legislators exempt banks from checking the creditworthiness of a potential borrower. Since 2016 there has been a legal obligation to check creditworthiness. However, this explicitly omits references to credit agencies.
§505 ABGB states: “ The lender must check the borrower’s creditworthiness before concluding a consumer loan contract. The lender may only conclude the consumer loan contract if the credit check shows that there is no significant doubt about a general consumer loan contract (…) that the borrower will fulfill his obligations (…) in accordance with the contract. “
The legislator thus leaves the banks with the detailed structure of the credit check. The combination of self-disclosure and query of the public registers unequivocally represents a credit check with valid results. If the results were not valid, there would be an unusually high number of loan defaults. In this case, it would not be possible to explain why the loans have been granted for decades.
Critics often accuse the providers of Swiss loans of specifically looking for borrowers who do not get a loan elsewhere and then charge them excessive interest. It is easy to refute this claim. The majority of successful loan applications to consumers with completed negative characteristics at Credit Bureau should therefore be lost. After a while, unfinished negative features also leave traces in the directories and on bank statements, which prevent lending.
The granting of loans for completed negative features is by no means a monopoly of the providers of Swiss loans. For example, peer-to-peer platforms also grant loans if there are completed Credit Bureau entries. The Lite Lender grants microcredit up to $ 25,000 to founders and young entrepreneurs and only defines unfinished negative features as an exclusion criterion.
It is also not true that Swiss loans are disproportionately expensive. The effective interest rates on the loans are currently in the range of approx. 10-11% and thus at the level of an average overdraft facility at a local savings bank. The offers are thus far removed from usury interest rates (which, depending on the definition, start at around 20-30%).
With such small differences: why are there Swiss loans at all?
The question arises: If the differences between conventional bank loans and Swiss loans are so small, why are there Swiss loans at all? The answer is simple: consumers often ask about the loans.
The demand for Swiss loans is not only due to the banks’ waiver of a Credit Bureau query. Not all consumers agree with the current developments in the credit business. Non-transparent algorithms are increasingly determining whether a contract is concluded or not – at least de facto. The credit check for Swiss loans is much more transparent and understandable for everyone.
Swiss loans are legal : According to Section 505a of the German Civil Code (BGB), banks are free to choose how exactly the credit check is to be set up. Inquiries to credit agencies such as Credit Bureau are not legally required and will not be in the foreseeable future. However, not using the Credit Bureau query is the key difference to conventional bank loans. For Swiss loans, the credit check is limited to self-disclosure and public directories.